EAGC: Japan concerned over rising LNG prices

LAKE COMO, ITALY, Dec. 2 -- High LNG prices will affect LNG demand in Japan because it would not be competitive against electricity, warned Tokyo Gas Co. Ltd. Senior Vice-Pres. of LNG Europe, Kentaro Morikawa, at the European Autumn Gas Conference (EAGC) at Lake Como, Italy.

Morikawa said independence from oil prices was needed in the future if LNG was to be an alternative to oil. "Electricity is competitive against highly priced oil and gas," he said. "Electric power companies may cover the growth in demand by expanding nuclear power generation."

He called for a price that will support both sellers' and buyers' sustainable growth. "There is a need for a price with less exposure to oil price fluctuation and to distinguish the discussion between long-term and spot pricing."

As one of the world's largest customers of LNG, Japan has paid premium prices to ensure supply diversity because its geographic location makes it difficult to import pipeline gas. Several export projects such as Pluto LNG, Sakhalin-2, Tannguh LNG, and Greater Sunrise, have been proposed, but these are facing rising construction costs, limited capacity, a scarcity of feed gas, and host countries' revising commercial conditions. Operators have been hesitant to sanction LNG projects, and Japan faces a shortage of new LNG supplies coming on stream in Asia-Pacific in the medium term.

Morikawa stressed that Japan was happy to be a foundation LNG customer, and that it is critical to have a strong relationships with sellers based on trust.

However, increasing domestic gas demand in Indonesia, Malaysia, and Thailand is another issue for potential LNG exporters, said Edward Chow, Senior Fellow at the Center for Strategic and International Studies. "China and India have increasing [gas] demand, but they are more price sensitive." By 2030, he added, gas demand in Asia will grow, with demand in OECD Europe and the US trailing behind.

China, India challengesThe emergence of China and India as potential LNG importers is another driver in the development of the Asian LNG market. India has expressed interest in building regasification capacity, but discoveries of large gas fields, Dhirubhai and Deen Dayal, on its east coast will affect how much LNG imports are required.

China wants to increase gas usage for environmental reasons, Chow said, as the government is concerned about the health problems of its people. Several LNG terminals have been proposed in China, but Morikawa questioned whether they would come to fruition. "The difference between domestic market prices and LNG prices cannot be covered by subsidies," he said. "Will end users not be able to pay high prices?"

China also is pursuing pipeline import options from Russia and Central Asia, and it remains to be seen whether the country will return to a coal-based energy policy as geopolitics and competition for gas supplies intensify.